The Impact Of The Real Estate Bubble On The Bank System

Since the nineties of last century, China has gradually implemented the housing reform in order to stimulate the real estate industry as the main pillar of China's economic growth of industries. Especially from 2000, with great GDP growth, the real estate investment has also developed considerably and the proportion of nation's total investment in fixed assets increased over time. In the 21st century, China's economic development has entered into a new stage.The real estate industry has entered a period of prosperity. The phenomena of rapid increases in house prices and real estate speculators appears frequently. Especially recently, experiencing the baptism of the economic crisis, China overall economic has recovered. The real estate is becoming better ahead of the whole economy. Real estate is a capital-intensive industry, and has a close relationship with the finance. Real estate finance plays an irreplaceable role in their development. Volatility of real estate prices will lead into increase of non-performing assets of financial institutions, increased financial risk and serious damage to the banking system's stability and development.Domestic and international economic history tells us that the over-heated real estate bubble will give a grave blow to a country's financial system and the overall economy, even the world economy. The issues Attention to the real estate market bubble, its impact on the banking system research, how to monitor and prevent the conformation of non-performing assets due to the real estate asset bubble and the formation and accumulation of financial risks has become an urgent one of further investigation.The paper is triggered by the subprime mortgage crisis of the real estate bubble on the impact of the banking system. First of all, the article introduces the meaning of the real estate bubble and the related theory, then reviews and compares domestic and foreign real estate bubble in history and the impact on the banking system. On the basis of this, the paper establishes a three-variable VAR model, including real estate price index, bank loans and real interest rates, and research the dynamic effects between the price of the real estate and bank assets and real estate prices on the contribution rate of bank loans with the methods, including co integration test, impulse response functions and variance decomposition. At the end, the paper considers empirical analysis conclusions and policy recommendations.